Commercial Mortgage Loans: What Are They?
Commercial mortgage loans are executed using real estate to secure the loan. Commercial mortgages are similar to residential mortgages, except that the collateral used to secure the loan is a commercial (business) building instead of a personal residential home. If the borrower defaults on the loan, the lender can seize the collateral (building) to recover the proceeds of the loan.
Commercial mortgage loans are not available to individuals, but to companies, which include partnerships, incorporated companies, limited companies, etc. The business must be financially sound, and the process of verifying the company’s income can be more complicated than verifying the creditworthiness of a particular individual. That’s why traditional commercial mortgages can take six to nine months to underwrite.
Commercial loans are taken out for a number of reasons: to purchase the premises of an existing business, to make improvements or extensions to existing premises, to make commercial and residential investments or to develop existing property in other ways. An example would be buying already built commercial premises such as offices, shops, restaurants or pubs. In addition, they can also be used to purchase business assets such as plant equipment and specialized machinery.
Interest rates on commercial mortgages are generally higher than residential mortgages, but lower than interest rates on unsecured commercial loans. A fixed rate loan is the most common commercial mortgage. It is similar to a fixed rate mortgage loan in that the interest rate remains constant throughout the term. However, the term of most commercial mortgage loans is between 3 and 10 years, but can be extended up to 25 years.
The commercial mortgage loan amount and the interest rate you can receive is a direct correlation of your creditworthiness as assessed by the lender in terms of your ability to repay the loan. If you have an excellent business history with a verifiable profit and loss statement, you will have no problem getting a commercial mortgage at an attractive interest rate.
Business loans are not provided without thorough scrutiny of the stability and profitability of your business. Typically, the lender wants to see your last three years of audited financial statements, including an income statement, balance sheet and cash flow forecast. Favorable business information is critical to the lender and to you because, as stated above, if you default on the loan, the lender can repossess your property and sell it to pay off the outstanding mortgage balance.
The best place to find commercial mortgage loans is on the Internet. There are a large number of commercial lenders competing for your business and they all advertise on the Internet. It is possible to compare many loan quotes side by side and determine which one is best for your financial situation.
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